What Is Pay-As-You-Go Workers' Comp?

Workers compensation is a legal requirement for almost every employer in the US. It exists to provide financial support and cover in the event of an employee getting injured or becoming ill on the job because of their job.

To ensure this coverage is available, employers must have workers' compensation insurance. Paying this insurance can be tricky if there are large lump sum payments involved, which is why most carriers offer a pay-as-you-go solution.

What Is Workers' Compensation Insurance?

Put simply, workers' compensation insurance is insurance paid by employers to cover themselves if an employee claims workers' compensation. This type of claim follows an accident or incident in the workplace that leaves an employee injured or ill and unable to work. It covers their lost wages and medical bills, amongst other things.

Employers pay this insurance, then the insurance carrier pays out when a viable claim is made. There are multiple ways this can be paid, including the pay-as-you-go system up for discussion now.

What Is Pay-As-You-Go Workers' Compensation Insurance?

Pay-as-you-go workers comp insurance is a payment solution that splits the cost of workers comp coverage with each pay period. It is not a separate type of insurance, and does not take the place of state-approved coverage- it is just an alternative way to pay.

When businesses enroll in pay-as-you-go workers' compensation insurance, they pay their premiums each payroll cycle using real-time payroll data for that period. This replaces the more traditional setup of paying all or most of the premium upfront for the year ahead based on estimated payroll totals.

Traditional Workers' Compensation Insurance VS Pay-As-You-Go

There are two key differences between traditional workers' comp insurance and pay-as-you-go solutions.

Firstly, a traditional workers' comp plan usually involves a large initial down payment to kick off the workers' compensation policy. A pay-as-you-go structure has little to no upfront costs.

Secondly, a traditional payment plan is calculated based on payroll estimates- specifically estimated annual payroll data. On the other hand, pay-as-you-go plans are worked out for each individual coverage period based on actual payroll figures for that period.

How Does Pay-As-You-Go Workers' Comp Insurance Work?

Pay-as-you-go does not make insurance cheaper, nor does it change the requirements of the policy. It just changes how businesses pay. There are two ways it works: through the insurance carrier, or through the payroll service provider. Both have the same outcome and overall structure, with minor differences in the way data is reported and collected.

Directly With the Insurance Carrier

One option is to set up premium payments as an insurance expense. Each pay period, companies must report their payroll data directly to the insurer. They can then calculate exactly what amount is owed for that term.

Through the Payroll Provider

Alternatively, businesses can set up their insurance payments as a payroll expense through the payroll company. When wages are calculated, so too is the workers' compensation insurance amount. It can then be automatically deducted and paid out to the insurer alongside other payroll amounts.

The Benefits of a Pay-As-You-Go Workers' Comp Insurance Plan

Both options are effective and efficient for ensuring accurate premium payments and compliance, and both offer similar benefits. Paying via payroll is the most convenient, as calculations are taken care of, but it reduces direct access to the amounts paid.

Businesses retain more insight by calculating themselves and paying the insurer, but it requires some more administration.

Here is an overview of the general benefits of a pay-as-you-go workers' compensation insurance solution for employers.

Improved Cash Flow

Paying for workers' compensation insurance is not optional, but it can put financial strain on smaller companies with less capital available. Arranging to pay workers' comp premiums gradually instead of in a lump sum is far more manageable for a lot of companies, and ensures the business has sufficient cover for its employees.

More Accurate Premium Payments Calculated Based on Actual Payroll Figures

One of the main downsides of a traditional plan is the lack of accuracy. Very few companies can predict exact numbers for annual payroll, and must, therefore, base their insurance on best estimates. If the actual figure is different, it could mean overpaying or underpaying for the year, which can cause problems with year-end audits and leave businesses owing money.

Calculating premiums alongside payroll processing avoids any inaccuracies or nasty surprises at the end of the year. This is better for financial planning and audit compliance.

Automate Payments Through Payroll or as an Insurance Expense

As well as being more accurate, payments are also made more convenient. Depending on the insurer, most of the administrative burdens are taken over and amounts are automatically deducted- either as a payroll expense or insurance expense.

Does a Pay-As-You-Go Workers' Comp Payment Plan Impact What Employees Are Entitled To?

It makes no difference whether a company takes advantage of a pay-as-you-go solution for their workers' compensation premiums- their employees are still entitled to the same compensation if they are injured or become ill because of their job. For more information, hire a workers comp attorney in Columbus.

Know Your Rights as a Worker and Get the Compensation You Deserve with Larrimer & Larrimer

Larrimer & Larrimer is a leading legal firm specializing in workers' compensation claims in Columbus, Ohio. No matter what system employers use to pay their workers' comp premiums, their employees are still entitled to support when things go wrong.

This team of attorneys is highly skilled and experienced in handling a range of claims- fighting for injured workers to ensure they get the compensation they are owed. We can also provide details on pay-as-you-go vs. traditional workers’ comp insurance.

Arrange a Free Consultation Today

Contact the dedicated legal experts at Larrimer & Larrimer to discuss your rights and workers' compensation. Don't let your injury or illness go unanswered, and get the financial support you deserve.